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Are you surprised if you are paying $5 for a bowl of noodles these days? It is an irrefutable fact that Singapore’s standard of living is rising. Practically everything is rising, and in an estimate of 10 years’ time, will you be shocked to see the same bowl of noodles costing $7 and above?

But how comfortable are we in dealing with the rising costs? Are we affording big ticket item like a roof over our heads without getting dragged down by a massive ball of debt?

The table below shows the quarterly Consumer Price Index-All Items Inflation (CPI) of Singapore. The jump of 5.1 percent for the CPI within the span of only one year does indeed raise some eyebrows discreetly. Unlike the core inflation rate, the CPI includes variables like housing and transport, which arguably are two of the most volatile constants but yet important enough to impact our lives, one way or another in this equation. So for the sake of this piece, let’s bring the overall costs into the picture as we find out if you are coping well with the increased prices, and how much purchasing power you have lost.

*Source Factset

The jump in CPI level of approximately 3.7 percent for the transport sector to 131.7 in just one month was mainly due to increased Certificate of Entitlement (COE) prices, where the latest COE figure for the open category tipped a whopping high of $92,010 in April. And in case you’re unaware, $92,010 buys you the right to buy a car; the price of the car is exclusive of the $92,010. This is one of the government’s ways of curbing private transport on the limited space and roads in Singapore. If you’re one of those who are eyeing to get a car despite the shocking COE prices, you might want to note that since May 2011, the transport level has been gradually increasing from 120.9 to the 131.7 we are seeing now for March 2012.

Housing
In a general nutshell, although the housing figure in the table above also factors in prices of private homes, which are perpetually rising, it also includes the prices of Resale Flats (also rising as well as a result of overflowing demand and speculation) as a significant constituent. As Built To Order Flats are based on the price of resale flats, followed by a government grant (fixed sum) to mitigate the cost, there is a possibility that public housing prices will eventually be too expensive, if the grants meted out do not increase in line with the price of resale flats.

The Retail Price Index (RPI) above tracks the overall price movement of the public residential market, which is calculated using resale transactions registered across various towns, flat types and models. The initial base was set at 100, and it seems like we might just be heading into an inevitable 200 in the near future. Perhaps yet another slew of cooling effect will be implemented when that happens, but to what extent resale prices would fall to remains a huge question mark considering the low interest rate here in the lion city.

Measuring Your Purchasing Power Against CPI
In the context of this piece, as we started off with the CPI, you can now measure your wage against the CPI and see how much purchasing power your real wage has lost.

I shall now illustrate this example with the following calculation, which you can do on your own too.

Firstly, these are the certain things you’d need to have in order to start your measurement.

Firstly, we’ll calculate how much your wage (that year) is worth in current year terms:

$3,364 is the current equivalent purchasing power of the $3,200 you had that year.

Then, we’ll go on to find out how much purchasing power you’ve lost or gained during this period

*Note: Step 4 will normally be a percentage loss figure, unless the answer in Step 3 is negative instead, then it’ll be a gain.

In the above example, your real wage has fallen 1.9 percent within this period and in terms of purchasing power, you are now effectively earning 98.1 percent of what you’re earning “that year”.

We have the best airport, great infrastructure, and is one of the best cities to live in around the world. But are we getting too expensive? Let us know what you think on our facebook page.

Louis is a qualified accountant with the ACCA, and is the Research Editor at Shares Investment magazine.

The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!